The Digital Signage Insider

How Many Ads Do You Need to Sell to Keep a DOOH Network Afloat?

Published on: 2012-01-05

I'm prepping the latest version of our annual digital signage pricing survey, and as always, the process starts with reviewing our articles and analysis from past years. This time, I also had the data from our recent DOOH advertising survey swimming through my head. As a result, I realized that we'll finally be able to make some observations about what it takes to fund an advertising-based digital signage business. If you're thinking about starting a digital signage network, or if you're a fan of our budgeting articles, or if you're just really bored, then read on.

What does it take to fund a 100-screen network?

First, the usual caveats apply. As we always note in our digital signage budgeting articles, there's really no such thing as a typical digital signage network, whether it's 10, 100 or 1,000 screens. And the variable costs of things like content, venue profit sharing and the like can considerably affect what it truly costs to own and operate a network. Still, there's no denying that regardless of size, it has consistently gotten less expensive to build out a network over the years. That's why it's so befuddling to find so many DOOH networks continually starting up and shutting down. I mean, if the enabling technology keeps getting more affordable, and there are all these experts and Internet sites out there to warn people about common pitfalls and explain how to pick business models and optimize content performance, why aren't more networks surviving?


Image credit: Amy Leonard on Flickr
Well, if the results of our DOOH pricing survey are accurate, a big part of the problem may simply be picking a pricing system that both the buyer and seller are comfortable with. As we learned, most buyers and sellers want to base pricing on some kind of reach-based metric like CPM Viewers. However, when asked how they tend to buy/sell DOOH ads, only 28.6% indicated that they currently use this approach, while 24% buy or sell on a spot-by-spot basis, and 22.1% buy or sell on a screen-by-screen (or venue-by-venue) basis.

We also learned that the median CPM Viewers price of $6.50 might be representative of what's being bought/sold in today's market, but a single number can't really capture the wide variety of networks and media prices that are out there. Consequently, buyers and sellers alike have trouble making meaningful price comparisons and can't mentally shop a DOOH sale or purchase against other kinds of media.

Let's talk numbers

We noted last year that the "average" 100-screen network takes an average of 9 people to run, with an average salary of $52.5K per employee. That's equivalent to $39,375/month in expenses, or $394/screen/month. When added to the $103/screen/month in capital expenses we calculated from our survey results, the "average" screen in a "typical" 100-screen network costs about $497/month after salaries are factored in. In other words, a 100-screen network would need to earn just under $50,000/month to stay afloat.

Regardless of how you choose to price it, the figures above indicate that each screen in the network needs to earn about $500/month. Using CPM Viewers-based pricing and our median figure of $6.50 CPM, we can thus calculate a wide range of break-even scenarios (assuming that ad buyers are buying on a month-to-month basis, there are 30 days in a month, and each viewer sees every ad once during their visit):



By combining this information with a basic knowledge of venue traffic profiles, we can get a better understanding of how the break-even analysis plays out in real world scenarios:
  • For a network in low-traffic venues that sees only 1,000 visitors/venue/month, you'd need to sell a whopping 77 units of ad time on each screen to break even. If those are all 15-second spots, that amounts to over 19 minutes of commercial air time (double if the spots are 30 seconds long).

  • Moderate traffic venues like retail stores and specialty markets might serve 150 customers each day, or around 4,500 per month. Screens in these locations would need to sell about 17 units of ad time to break even.

  • Meanwhile, a reasonably high-traffic QSR location might serve 1,500 customers a day. A network built in these types of venues would only have to sell about 2 units of ad time on each screen to break even, since each ad would be shown to about 45,000 people/month.

  • Finally, a high traffic venue like a popular supermarket can easily serve over 2,500 customers per day. Assuming that all of them came across the DOOH network's screen, that owner would only have to sell one ad-unit of time to break even. Of course, at these high volume locations, ad buyers may be less comfortable paying the full CPM price, especially in situations where it's unlikely that all customers will actually see the screen.
How should lower-traffic venues respond?

While CPM Viewers pricing clearly works out favorably for the seller at high-volume locations, there are tens of thousands of screens deployed in venues that don't get anywhere near the several hundred visitors per day needed to make the model affordable. For these networks, a flat price-per-spot-per-month model probably makes more sense. Looking back at our DOOH survey data on the matter, clients reported being willing to pay anywhere from under $20 to more than $140/spot/screen/month, presumably depending on factors like the desirability of the location, screen size, etc. Still, the math here is easy: at $20/spot/month, a network owner would need to sell about 25 spots/screen/month to break even. At a whopping $140/spot/screen/month, he would need to sell less than 4.

Of course, most network owners aren't aiming for a break-even scenario. They want to be profitable. And as you can see from the numbers above, the different pricing strategies can have a pretty significant impact on what it takes to reach profitability. They also differ on things like promotional techniques: "giving away" a $140 spot to a good customer is obviously less desirable than giving away a $20 one (even though the cost basis is probably the same: close to zero). And lowering the CPM for a "bonus" ad might cause a client to question why the CPM would be "higher" for all of his fully-paid spots.

Still, there's plenty of creativity in the industry when it comes to pricing ads on digital signage networks, and I'm pleased to see that the above combination of our two survey data sets doesn't fall far from my own observations, and the comments I've received from our customers. This makes me particularly excited about our upcoming 2011/2012 digital signage pricing survey. I don't get the feeling that costs have changed that much since our last survey, but I've been wrong about that kind of thing before. And later in the year, we'll be following up with another survey on content generation, in order to get a more complete picture of what it takes to build and run a network of digital signs, whether for advertising or other purposes.

Do these break-even estimates match up with your expectations? Leave a comment and let us know! (If you're viewing this in your email or RSS reader, click through to /blog to comment.)


Comments   

0 stephen randall 2012-01-05 20:02
Bill - as always, you've written a very insightful piece. As you mentioned, it's baffling why so many DOOH networks fail when there is so much data on what not to do. From our experience working across many of the largest DOOH networks in US and Europe, your pricing model assumptions are reasonable, however, I think your assumptions about larger foot traffic venues such as supermarkets need to factor in more than one screen - so the economics for those venues will be less attractive than indicated in my opinion. As a rule, we think the economies of scale for a DOOH ad network (with all the caveats you mention above) are hard to leverage until you get over 500 venues. In addition, those venues need to be the best possible in the best markets. Apart from the obvious, a major reason for failures in our market is that networks don't reach enough critical mass to attract enough advertising. A mix of local and national advertising is a hard act - local can take a lot of feet on the ground and national takes scale. So a 100 screen network is a difficult beast to turn profitable - focus it on a key market (say NYC) and you might break even, but you probably won't retire on it. Keep up the good work sir! Cheers, Stephen Randall
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0 bill dulaney 2012-01-06 21:14
As Always- relevant and informational, William. News we can use!
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0 Bill Gerba 2012-01-11 16:54
Stephen: WRT factoring in more than one screen for large venues and/or venues with high traffic: I think that's a fair point, it just made the math horribly ugly. Instead, I assumed that regardless of square footage or dwell time each viewer would have exactly one opportunity to see each spot per trip. This helps to even out scenarios where a large shop might need 10 screens to ensure that all shoppers see the content, whereas smaller stores only need 1, for example. WRT "\\a 100 screen network is a difficult beast to turn profitable\\", I think that is true to some extent, but really depends on the business model and, more importantly, the venue type. I live down in South Florida near some extremely wealthy areas. Access to high income shoppers is very desirable, and consequently a few small hyperlocalnetworks that I know about can charge very high fees per spot just because the eyeballs are so valuable. They'll never be able to scale their networks to something huge and national, but I'd be surprised if they weren't turning profits right now as they are. Bill D: Thanks for the kind words, I appreciate them!
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0 Mary Kokoszka 2013-12-11 03:57
How about a subsidy partner model. A venue that offers an intimate distance of arms length for the digital signage. A respectable chain of venues with strong brand equity. A network of venues designed to increase freq by creating a network of locations in close proximity to one another - for this example, we will refer to them as casual dining clusters. Now couple all of that with functional dual USB ports to provide device charging stations on the digital signage device. Let's make it even more attractive by ensuring the digital signage product serves a true purpose - it's a functional caddy for bars or table tops. With a dwell time of just under and hour per visit, it is essential to display content which is complimentary to the target market, endemic to the environment and unobtrusive for the viewer. With cpm's in urinals just under $2 (captive/dwell time varies based on individual, if you get my point. Greater frequency only serves to support poor bladder control, excessive drinking or a combination of both!) and cpm's associated with gas pump ads around $15 (4-7 min dwell time/not captive), it makes sense a DOOH casual dining bar caddy would demand and secure cpm's respectable of the more seasoned DOOH network's like cinema advertising. More to come..
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0 Jordan 2016-01-30 07:22
I own a digital signage billboard in a very popular bar and grill in Concord, NH. I receive $300 per spot on my screen -but, I only accept a maximum of 8 spots per month. The bar gets 20K-30K visitors a month.
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0 Silas 2016-05-25 06:01
sorry.. but how do you calculate ? - for 1,000 visitors/venue/month, you'd need to sell a whopping 77 units ...
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0 Bill 2016-05-25 18:12
If your venues are only getting 1,000 visitors per month (or potential viewers, if you're doing street-facing or store window signage), they're probably not good candidates for digital signage. The exception might be if they're *exceptionally* well-targeted viewers, e.g. 1,000 one-percenters each month in some ultra-luxe retail establishment (though in that case digital signage might not be effective for other reasons)
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0 silas 2016-05-26 02:41
Bill..thanks...i do understand 1000 per month footfall will be less. I mean to ask just for reference...how do you calculate ..
for 1,000 visitors/venue/month, you need 77 units ? the formula ....:)
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0 Bill 2016-05-26 04:09
The formula breaks down at very small viewer numbers, which makes sense -- nobody would try to sell ads on a CPM basis with only a few thousand viewers. Instead, networks with these audience characteristics tend to sell based on a fixed price per screen, which usually makes more economic sense for the network owner and is easier to understand for the inevitably smaller advertisers that tend to appreciate these types of networks.
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0 silas 2016-05-26 05:53
Bill....fine..on average 350-500 daily traffic is okay ? what can be the best ad rate daily ...is it best to first install it in 1 or 2 location and then scale up...if possible...
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0 Bill 2016-06-23 17:47
If money were no object, you would of course want to cover your entire market area, since that is what advertisers are most interested in. That is not usually possible, though, so you need to strategically pick and choose where you will spend your money and place your initial screens.

As I noted, though, for small indoor signage networks (less than 1,000 venues at least) it is uncommon to sell on a CPM basis. Most advertisers and network owners alike agree that a monthly/quarterly per-screen fee is more appropriate.
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0 Holmes 2016-07-07 05:37
Hey Bill, great article. We have digital screens in ballrooms and event centers which are usually occupied only weekends with a capacity of Atleast 1000/venue. How can we attract advertisers and what rate can we charge giving the fact we have 10 venues now?
Thanks
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0 Bill 2016-07-11 20:58
That's a hard question to answer. If your ballrooms primarily attract out-of-town visitors who are likely staying in hotels, etc., then tourism-focused ads would seem the best bet (local attractions, restaurants and the like). If the sites cater to locals, then local businesses would also be appropriate. If the venues are near to each other, I would suggest offering pricing across the whole network as a flat-fee. Your network is too small to use CPM pricing (and that will be over the heads of most of your potential advertisers anyway), so I'd stay away from that. Good luck!
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0 Holmes 2016-09-22 13:12
Hey Bill, Thanks for the very informative reply. The flat-fee pricing is working great for now. Our business is expanding rapidly, but even with the expansion we want to build our pricing model solely around the flat-fee system.
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